Strong $A takes toll at Caltex

Rising margins at the bowser and from supplying the booming resources industry have not been enough to counter the effects of the stronger Australian dollar at oil refiner
Caltex Australia
, which warned yesterday that profits for 2010 would dip.

The buoyant mining sector is driving up diesel consumption, while consumer appetite for high-performance fuels has contributed to record sales volumes at Caltex for petrol, diesel and jet fuel so far this year.

But Caltex, which is half-owned by US oil giant Chevron, said the stronger currency would cut refining margins by $65 million compared to 2009.

After-tax operating profit before significant items was likely to decline from $324 million to between $300 million and $310 million and net income to between $285 million and $295 million, down from $314 million.

The forecasts were still about 13 per cent higher than the consensus among analysts.

“The outperformance here is being driven by the very strong marketing performance; refining is just about breaking even," said Macquarie Equities analyst Adrian Wood. “It’s all been about selling more premium transport fuels."

Caltex chief executive
Julian Segal
said in August that the introduction of premium diesel, Vortex Diesel, had lifted marketing margins, while premium petrol sales were still growing despite a flat petrol market.

Caltex shares, which have surged almost 50 per cent since late June, lost 12¢ yesterday to $14.02.

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Production from Caltex’s two refineries has picked up in the current half to near-record levels after falling in the six months to June as production units were shut for maintenance work.

Full-year fuel output will still be lower than last year, at 9.8 billion litres, down from 10.2 billion in 2009. That is also down on Caltex’s August forecast of about 10 billion litres.

The rise in the dollar would have hit the refining business harder were it not for stronger than expected US dollar refiner margins in Singapore.

The Australian dollar has averaged US91.55¢ so far this year, about 16 per cent higher than a year ago.

Fluctuations in the exchange rate meant Caltex’s refiner margin in the September quarter in Australian cents per litre was little higher than in 2009, despite the much stronger US dollar per barrel rate.

Caltex pointed yesterday to a recovery in margins since the “bottom of the cycle" in the second half of 2009.

The comment was taken by Mr Wood to signal that Caltex believed the low point of the cycle had passed. But Deutsche Bank warned yesterday that it predicted pressure on refiner margins beyond 2011 because of excess production capacity in Asia.

It regards Caltex as “overvalued" and has a 12-month price target for the stock of just $10.10, about 28 per cent below yesterday’s close.

Caltex’s profit estimates assume a year-end exchange rate of US99¢ and an average refining margin of about $US7.60 per barrel.

It also revealed it would record a one-time charge of about $15 million after tax, taking net operating profit to between $285 million and $295 million for the year.